Swedish Real Estate
It's all about the money
Hans Derninger
Research Analyst
(+46) 8 4635-515
hans.derninger@db.com
Financing conditions determine the shape of a recovery
Despite substantial relief from monetary easing, the Swedish real estate sector fell
12% in 1H 2009. The Swedish sector underperformed European peers by 13pp
and the Swedish benchmark by 35pp. It is difficult to find visible triggers of an
imminent reversal of this lackluster performance. Improved financing conditions,
i.e., the availability of debt, are key for the transaction market and the pricing of
real estate equities, in our view. Lessons from Sweden after the financial crisis in
the early ‘90s suggest that a recovery will take time.
Deutsche Bank AG/London
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may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1. MICA(P) 106/05/2009
Industry Update
Top picks
Castellum (CAST.ST),SEK51.25 Buy
Companies featured
Castellum (CAST.ST),SEK51.25 Buy
2008A 2009E 2010E
DB EPS (SEK) 5.93 5.23 4.53
P/E (x) 10.7 9.8 11.3
EV/EBITA (x) 15.6 14.6 14.9
Fabege (FABG.ST),SEK27.80 Sell
2008A 2009E 2010E
DB EPS (SEK) 5.06 2.82 2.84
P/E (x) 9.4 9.9 9.8
EV/EBITA (x) 19.4 17.0 18.0
Hufvudstaden (HUFVa.ST),SEK48.30 Hold
2008A 2009E 2010E
DB EPS (SEK) 3.95 2.79 2.60
P/E (x) 14.4 17.3 18.6
EV/EBITA (x) 16.9 15.0 15.5
Kungsleden (KLED.ST),SEK38.00 Sell
2008A 2009E 2010E
DB EPS (SEK) 2.40 2.89 3.04
P/E (x) 22.2 13.2 12.5
EV/EBITA (x) 17.2 13.5 14.9
EPRA Europe Total Return Index -5yr
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Upcoming events Date
Fabege 2Q interim report
10 Jul 2009
Castellum 2Q interim report
14 Jul 2009
Kungsleden 2Q interim report
19 Aug 2009
Hufvudstaden 2Q interim report
26 Aug 2009
Global Markets Research Company
Swedish economy: a weak start to 2009 but signs of stabilization
Swedish GDP fell by 6.5% y/y (-0.9% q/q) in 1Q 2009. The Swedish PMI for June
increased above the 50-mark threshold, suggesting that the downturn in Swedish
industry has leveled off. Deutsche Bank economists predict the Swedish economy
will contract by 5% in 2009 and pick up 1.5% in 2010 vs. 0.8% for Euroland.
2Q interims: focus on the weakening occupier market
With capital values in Sweden only falling by 7.9% in 2008 according to IPD, and
with consensus expectations for a further 16% fall in 2009 (source: a poll
performed by IPD in conjunction with the 2008 IPD Index release on 25 February
with 34 real estate/investment professionals as respondents), we expect to see
property appraisals and assessments of the occupier market start to catch up with
the macro backdrop seen in 4Q 2008 and 1Q 2009. Continued poor transparency
on valuation assumptions runs the risk of leading to increased risk premiums for
some names.
Transaction market hampered by adverse financing conditions in 2Q
Total transaction volume in 2Q amounted to SEK8.5bn, down 77% y/y, according
to Jones Lang LaSalle. Polarization in terms of pricing between prime and
secondary properties has continued. For prime assets, yields in transactions have
been fairly stable in 2Q vs. 1Q, while secondary assets are experiencing more
adverse conditions given a different investor segment that is relatively more
dependent on the availability of debt financing.
Refinancing issues is the black box
Many foreign banks have withdrawn from the Swedish market as they need to
address problems at home. This increases demand for Nordic banks’ lending
capacity. If this demand is not met, we expect more situations with investors
facing liquidity/refinancing problems and possibly distressed sales, or banks
seizing collateral in order to protect their claims.
Valuation and risks
We use a discounted cash flow valuation model to derive 12-month price targets
(see Appendix B and company pages for details). The Swedish universe trades at
P/NAV 2009E: 92% vs. 84% for Deutsche Bank’s European universe, and
EBITDA/EV 2009E: 6.7% vs. 6.3%. Key downside (upside) risks for investors are: a
drawn-out (swift) recovery of the banking system and its implications for debt
availability and cost; increasing (stable) real interest rates with a negative (positive)
impact on capital values; and a drawn-out (quick) economic recovery with a
negative (positive) impact on the occupier market.